In recent years,the frequent occurrence of global climate disaster events has posed unprecedented chal-lenges to the sustainable development of human society.The host country's climate risk has gradually become an impor-tant factor influencing the location of foreign investment.Every extreme weather event increases perceived risks of cli-mate change,including both physical risks due to the destructive effects of such events and transition risks arising from in-creased awareness of these risks and political will to mitigate them.Do multinational enterprises take physical risks into account when making foreign investment decisions?How will firms react to the transition risks arising from the tighten-ing of relevant policies in the climate governance process?This paper aims to analyze the impact of climate risk in host countries on Chinese firms'OFDI.This will help clarify the heterogeneous impact of climate risks on investment deci-sions,provide empirical evidence for Chinese enterprises to formulate investment strategies,enhance investment effi-ciency,and realize efficient and rational allocation of resources,which is of great practical significance for enhancing the competitiveness of Chinese enterprises in the global economic landscape.To explore these issues,this paper first reviews previous studies on climate risk and OFDI.While previous studies are mainly at the country,city,and industry levels,this paper focuses on the micro subject of enterprises,which better reflect the investment decision-making behavior of enterprises and improve the accuracy and application value of the em-pirical evidence compared to the macro data.Then,this paper builds a partial equilibrium model describing how physical and transition risks in host countries affect Chinese firms'OFDI,drawing on the idea of Helpman et al.Meanwhile,this paper constructs and empirically tests a dynamic panel by matching the OFDI data of China's listed enterprises with the climate risk data of each country for the period 2010-2022.The results are as follows.Firstly,host countries'climate risks have a significant negative impact on Chinese firms'OFDI.Secondly,the deepening climate risks in host countries affect Chinese firms'local direct investment through two main channels:the management costs and the unit cost of emissions.The inhibiting effect is more significant in the sample of high-income countries,firms in the energy sector,and firms with greater climate risks than those in China.In terms of the time effect,the negative impact of climate risks on Chinese firms'OFDI will last for 2-3 years.In addition,among the five typical climate hazards,the negative impacts of drought and extreme temperatures are the most promi-nent.The above conclusions remain valid after robustness tests,including adjusting fixed effects,replacing the core ex-planatory variables,and excluding the effect of the Covid-19 pandemic.Additionally,considering the potential endoge-neity problems in the model,this paper uses Heckman two-step method,identification at infinity,and local difference-in-differences(DID)to test the results,finding that the results are consistent with those of the benchmark regression.The paper concludes that countries and international organizations should further deepen international cooperation,strengthen global climate negotiations,and jointly build a fair and reasonable global climate governance system with win-win cooperation.Enterprises should strengthen climate risk management,improve climate risk supervision and preven-tion mechanisms,and enhance climate resilience.They should strengthen technology R&.D,improve the output per unit of emissions in the production process,and reduce emissions costs.Additionally,in the process of globalization,Chinese multinational enterprises should improve the risk assessment mechanism of overseas investment,analyze and compare cli-mate risks and local comparative advantages,and strive to find the best balance between risks and benefits.It is hoped that this paper can provide a useful reference for the scientific understanding of the impact of the host country's climate risks on Chinese enterprises'outward FDI,improving the safety and rationality of OFDI decisions.
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